Prior to now, Android applications have been limited to 50MB, and developers have had to trim down their work to fit that criteria. The new maximum application size of 4GB doesn't necessarily mean the size of the APK will be increased, but rather the Android Market will host the application's expansion files. This will help the Google keep a closer eye on when a user completely finishes the download of a large application to properly start the refund period.
Most of us have experienced a long in-game download like Gameloft's Asphalt 6, and then realized the refund period has already passed. In the Android Market, these expansion files are added to the 50MB size of your application so users know how much space the app will 'really' take up. There's nothing worse than downloading an application just to find out you've run out of storage when downloading in-game content.
Most newer devices should download expansion files automatically, but for older ones it downloads them when you first run the application. The sooner developers take advantage of this extra space on the Android Market the better, because installation via its servers are very fast opposed to some others. Google has included some 'Helpful Resources' on their Android Developers blog for developers aspiring to implement these expansion files into their applications, so be sure to take a look.
[via Android Developers Blog]